The running joke among business journalists regarding pro forma accounting goes something like this: “Excluding all the bad stuff, we had a great year.”
That’s the urge as I scan our list of 55 regional public companies that meet our criteria for consideration in Star 50. If we could only ignore a couple of corporate crackups, things aren’t nearly so bad in these parts.
Unfortunately, we can’t do that and face ourselves in the mirror every morning. The reality is that the earnings slowdown that I fretted about a year ago in this space — evoking Hal the computer’s “I’m afraid, Dave” riff in “2001: A Space Odyssey” as it shuts down — has arrived with full force.
Every year at this time, I combine the financial results of all of the region’s public companies into one hypothetical enterprise — dubbed Kansas City Inc. — to serve as a proxy of sorts for the broader regional economy.
As with seemingly all things in this business community, Sprint Nextel Corp. has an outsized influence in the results of our 18th annual Star 50. The telecom giant’s $29.7 billion fourth-quarter write-down — a non-cash accounting acknowledgement of the depths of problems stemming from its troubled acquisition of Nextel and a number of affiliates — skewed the results.
Nowhere is that impact as obvious as the bottom line.
Combined, the 55 public companies in our pool swung from a $4.95 billion profit during 2006 to a $28.2 billion loss during 2007.
But even if you strip out Sprint, earnings among the remaining companies fell from $3.63 billion in 2006 to $1.42 billion in 2007, a 61 percent decline.
Sprint certainly wasn’t alone in posting disappointing bottom-line results. High-profile names H&R Block Inc., Interstate Bakeries Corp., NovaStar Financial Inc. and YRC Worldwide Inc. also posted losses ranging from $115 million to $937.8 million last year.
Ouch.
Given the bottom-line results, it shouldn’t be surprising that the total market value of our regional public companies also took a hit.
As a group, the market cap of our regional public companies declined from $129.9 billion to $118.6 billion over the course of 2007 — a combined 8.7 percent decline. If you strip out Sprint, the market cap number swings positive, posting an 8.2 percent increase, to $81.3 billion, over the course of the year.
Those of us looking for more signs of a silver lining in all this can find it at the top of the income statement.
The region’s public companies, including Sprint, managed to increase total revenues from $95.4 billion in 2006 to $99.9 billion last year — a 4.7 percent increase that at least managed to outpace inflation.
As always, there is a message lurking in those numbers. And that message includes the R-word.
The Kansas City regional economy overall has weathered the economic slowdown better than many parts of the country, thanks in large part to the strength of the agriculture and energy sectors that are thriving beyond this city’s lights.
But that doesn’t mean we’re going to escape the recession stemming from the subprime mortgage crisis and the resulting credit crunch. Indeed, two of our most notable troubled local companies — H&R Block and NovaStar Financial — are paying a heavy price for their subprime mortgage ventures.
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